Ultragenyx Pharmaceutical Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Amounts are in U.S. dollars; financial statement amounts below are rounded to millions unless stated otherwise.
Business context and reporting period
Ultragenyx develops and commercializes therapies for rare and ultra-rare genetic diseases. Its approved therapies are Crysvita and Mepsevii; its clinical programs include UX007, DTX301 and DTX401. The company operates as one reportable segment and continues to incur substantial operating losses.
Key financial metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $24.1m | $12.8m | $42.3m | $23.5m |
| Operating expenses | $136.6m | $107.7m | $254.0m | $214.9m |
| Operating loss | $(112.5)m | $(94.9)m | $(211.7)m | $(191.4)m |
| Net loss | $(99.2)m | $(52.7)m | $(195.9)m | $(22.5)m |
| Net loss per share, diluted | $(1.72) | $(1.06) | $(3.54) | $(0.46) |
| Cash used in operating activities | Not separately presented for the quarter | $(184.8)m | $(165.6)m |
Q2 revenue included $19.2m of collaboration and license revenue, principally Crysvita profit-share and royalties, and $4.9m of product sales. Product sales comprised $3.2m of Mepsevii, $1.0m of Crysvita and $0.7m of UX007. Cost of sales was $0.8m; reported gross profit was approximately $23.4m, though this is not a like-for-like product gross margin because revenue includes collaboration income and some pre-approval manufacturing costs had been expensed.
At June 30, 2019, cash and cash equivalents were $131.3m and short-term investments were $486.9m, totaling $618.3m. Current assets were $699.4m versus current liabilities of $75.0m. Total liabilities were $139.1m, including $40.0m of lease liabilities; the filing reports no borrowings. Stockholders’ equity was $819.8m. Six-month investing cash outflow was $159.6m and financing inflow was $363.0m.
Material changes versus the prior comparable period
- Q2 revenue increased 89% and six-month revenue increased 80%. Crysvita collaboration revenue rose with U.S. and European commercialization; product sales also grew, including Mepsevii.
- Bayer collaboration revenue fell as clinical development transitioned to Bayer: $0.1m for Q2 and $0.4m for the first half of 2019, versus $8.9m and $18.3m, respectively, in 2018.
- Research and development expense increased 25% in Q2 and 14% for the first half, driven in part by DTX301/DTX401 development, translational research and the Arcturus transaction. SG&A increased 30% and 27%, respectively, reflecting personnel, commercialization, stock compensation and professional services.
- Net loss worsened versus 2018, when results included priority review voucher gains of $40.3m for Q2 and $170.3m for the first half. No such gain was recorded in 2019. The 2019 first-half result also included a $9.8m gain from remeasurement of Arcturus securities.
- Cash and short-term investments rose from $459.7m at December 31, 2018 to $618.3m, primarily reflecting the February 2019 equity offering, which raised $330.4m net, and ATM sales of $24.8m net for the first half. Common shares outstanding increased from 50.9m to 57.7m.
Outlook, commentary, risks and unusual items
- Management said existing capital resources should fund projected operating requirements for at least the next 12 months. It expects annual losses to continue for the foreseeable future, with expenses likely to rise as programs advance and commercialization and infrastructure expand. It also stated additional capital will likely be required over time; future financing may not be available on acceptable terms.
- After quarter-end, in August 2019, the company announced submission of a UX007 NDA for LC-FAOD and expected an FDA response on filing acceptance within 60 days of submission. Management expected DTX301 and DTX401 study updates in Q3 2019. These are forward-looking statements, not guaranteed outcomes.
- In June, Ultragenyx paid $30.0m under its expanded Arcturus arrangement: $6.0m upfront, $13.9m initially recorded for Arcturus shares, $0.5m for an option, and $15.6m recorded as in-process R&D expense. The shares and option were marked to fair value; the filing cautions that Arcturus share-price volatility could cause significant future earnings fluctuations.
- Key risks include clinical and regulatory uncertainty, small and hard-to-identify patient populations, pricing and reimbursement pressure, dependence on collaborators and third-party manufacturers, single-source supply exposure, and the need for additional funding. Gene therapy and novel RNA-based programs also carry manufacturing, safety and regulatory risks.
- The company adopted new lease accounting guidance in January 2019, recording right-of-use assets and lease liabilities. Lease liabilities were $40.0m at June 30. No material legal proceedings were reported. Management stated disclosure controls were effective and there were no material second-quarter changes in internal control over financial reporting.
Important facts for investors to verify
- Whether Crysvita collaboration revenue and product sales continue to grow, and how the KKC profit-share arrangement and commercial transition affect future economics.
- FDA review progress and regulatory decisions for the UX007 NDA, alongside clinical updates and safety data for DTX301 and DTX401.
- Cash burn relative to the $618.3m cash-and-investment balance, expected funding needs, and any further equity issuance or dilution.
- The sustainability of reported revenue and losses excluding nonrecurring voucher gains and volatile Arcturus fair-value changes.
- Execution and cost of manufacturing, supply, commercialization and pipeline plans, including the potential effect of increasing R&D and SG&A spending.